The commerce department wants to create a fund aimed at boosting India’s shrinking exports, proposing a financing mechanism that would discourage exports of raw material and help local value addition. (MSMEs account for nearly 45 per cent of India’s exports).

The Ministry of Commerce & Industry is likely to pitch the idea of the export development fund in pre-budget consultations with the Finance Ministry on January 6.

“The fund will solve the twin purpose of financing exports and help in their marketing. There is a need for aggressive marketing for our exports at this point of time, particularly of small and medium enterprises.” said an official.

The Ministry will suggest that the government provide 50% of the funds, while the remainder can come from taxation of exports of raw material such as iron ore.

“We have to discourage the exports of raw materials and levying a tax would do so.”, the official said.

If raw material exports are subject to tax, they will become financially unviable and noncompetitive to export and can be ploughed into domestic manufacturing.

In October, the government increased support for products made by SMEs such as industrial machinery, machine tools, bicycle parts and hand tools used in agriculture, among others, and raised allocations under the Merchandise Exports from India Scheme to Rs 21,000 crore from Rs 18,000 crore to boost shipments.

However, the situation didn’t improve and in November, exports shrank by a quarter from a year earlier to $20 billion. Exporters believe the situation is now worse than at the peak of the global financial crisis in 2008-09.

April-November exports fell 18.5% from a year ago. Only seven of top 30 export goods, including carpets, jute products and tea, registered an increase in November, compared with nine in October.

The constant decline in exports has raised doubts about the country achieving last year’s export number of $310.5 billion.

The government has said there is no crisis on the export front and only a need for caution as a substantial part of the decline is due to the fall in gold and crude oil prices. Exports excluding oil and gems and jewellery fell 3.7% in rupee terms during April-November.

Various export promotion councils and the Federation of Indian Export Organisations, which will be present at the pre-budget meeting, are likely to push for exemption from a requirement to hire chartered accountants for every remittance that exceeds Rs 5 lakh.

Source: The Economic Times